Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
SOCIAL SCIENCES & HUMANITIES
Journal homepage: http://www.pertanika.upm.edu.my/
Strategic Posturing of Malaysian Mobile Phone Service
Providers
Mohd Fuaad Said1*, Khairul Akmaliah Adham2 and Farzana Quoquab2
Faculty of Economics and Management, Universiti Putra Malaysia, 43400 Serdang, Selangor, Malaysia
UKM-Graduate School of Business, Universiti Kebangsaan Malaysia, 43650 Bangi, Selangor, Malaysia
1
2
ABSTRACT
The Malaysian mobile phone service started with only one service provider in the 1980s,
which then increased to seven by mid 1990s due to government liberalization policies.
Nonetheless, this number decreased to three in 2004, and this marked the beginning of
an intense competition within the industry. Utilizing the case study and content analysis
methodologies, we gathered data from the public domain and developed a case that
describes strategic actions taken by members within the industry. Based on Miles and
Snow’s business strategy typology, we analyzed the case data by answering the questions
of “How do the industry players compete?”, and “What factors are important in shaping
their strategies?” The research objective is to provide a conceptualization of strategic
posturing by Malaysian mobile phone service providers. Our analysis show that the initial
strategic moves of these companies are predominantly prospecting, and, later, analyzing,
when the market reaches subscription saturation, and competition begins to intensify.
Industry latecomers either arise as challengers or adopt a niche strategy as their strategic
option. The adaptive actions of these companies are greatly influenced by institutional
elements of the government’s policies, market situation, and rivals’ actions and responses.
These actions are mainly tied to resources and capabilities of their large internationalized
parent companies. Taken altogether, the perspective of adaptation, as well as the theories
of organizational ecology and institutionalization, provides important theoretical grounds
in explaining strategic posturing and factors that influence it.
ARTICLE INFO
Article history:
Received: 30 April 2012
Accepted: 30 September 2012
E-mail addresses:
[email protected] (Mohd Fuaad Said),
[email protected] (Khairul Akmaliah Adham),
[email protected] (Farzana Quoquab)
* Corresponding author
ISSN: 0128-7702
© Universiti Putra Malaysia Press
Keywords: Strategic posturing, mobile phone
service industry, adaptation theory, Miles and Snow
business strategy typology, organizational ecology,
institutionalization theory
Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
INTRODUCTION
The Malaysian telecommunications
industry, which includes both fixed and
mobile service providers, has experienced
a very rapid growth, particularly in the last
decade. The industry, which since early
1990s, has been designated as a strategic
medium to transform Malaysia into a
developed country (Zita, 2004) is now one
of the central structures of the country
(Ahsanul et al., 2007). The industry’s
combined revenues rapidly increased from
17.4 billion ringgit in the year 2000 to 44.4
billion ringgit in the year 2008 (MCMC,
2010). However, beginning in late 2010,
the industry players have increasingly
faced various serious challenges such as the
imminent fiercer competition in both mobile
phone and broadband markets; threats of
impending market saturation; spiralling
infrastructure and technology costs; and,
possibly, higher bargaining power of the
suppliers. Thus, there is a need for them to
develop a strategic posturing-defined as the
act of strategizing to achieve competitive
advantages to ensure business survivability
and sustainability (Covin & Slevin, 1989).
Given their competitive situation, examining
these companies’ strategic posturing could
have important theoretical, policy and
managerial implications.
The adaptation theory suggests that
an organization’s success depends on its
ability to ‘adapt’ itself to changes within its
environment. Therefore, adaptation requires
capabilities and resources that enable
an organization to exploit opportunities
and reduce risks in its environment. The
2
organization also needs to continuously
evaluate its internal and external elements,
alters its internal structure and processes,
or influences changes to its relevant
environmental elements so that a viable
match exists between its internal capabilities
and resources with the external opportunities
and risks (Chaffee, 1985; Miles et al., 1978).
One of the important strategy
conceptualizations, which was developed
based on the adaptation theory, is Miles and
Snow’s (1978) business strategy typology.
It describes an organization’s strategic need
to fit its own capabilities and resources with
opportunities and threats which exist in
its environment, reflecting the adaptation
theory that underlies its conceptualization
(Chaffee, 1985).
We utilized this business strategy
typology as our theoretical lense to achieve
the research objective, which is to provide a
conceptualization of strategic posturing by
Malaysian mobile phone service providers.
The research questions that we addressed
are: “How do the industry players compete?”
and “What factors are important in shaping
their strategies?”
The organization for the rest of the
paper is as follows: First, in brief, we
discuss Miles and Snow’s business strategy
typology. Then, we describe the research
methodology utilized in this study. Next,
we analyze the strategies adopted by the
mobile phone service providers against our
conceptual framework and broader theories
of organizational strategies. This analysis is
based on the information gathered from the
public domain, and is presented in a form of
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
an industry development case in Appendix
A. Lastly, we present the conclusions and
implications for future research and practice.
MILES & SNOW BUSINESS
STRATEGY TYPOLOGY
The adaptation theory proposes the
importance of a firm’s ability in adapting to
its environment. In this sense, organizational
capabilities and resources are required to
exploit environmental opportunities and
overcome external threats (Chaffee, 1985;
Miles et al., 1978). Based on this theory,
Miles and Snow’s (1978) business strategy
typology assumes that organizations make a
number of choices in their efforts to manage
their environment, including deciding on
the markets that they want to be in, the
products/services that they want to offer,
the technologies that they want to adopt, as
well as the types of operations that they want
to implement (Parnell & Wright, 1993). In
this regard, these strategic moves are taken
based on evaluations of the environmental
elements and the matching of them with
the internal contexts of the organizations
(McDaniel & Kolari, 1987).
This typology recommends four
strategies, which are prospecting, defending,
analyzing, and reacting, that can be utilized
by an organization to compete against other
industry rivals (Griffin, 2011; Williams,
2005). These are summarized in Table 1.
RESEARCH METHODOLOGY
This study utilized a combination of
explanatory case study methodology
and content analysis methodology.
An explanatory case study design is a
methodological procedure that begins
with the study proposing a conceptual
framework, as well as defining the types of
questions and data that are appropriate for
analysis. The conceptual framework guides
the explanation of the empirical data, and
in turn, these data in combination with the
theoretical explanation provide the basis
for generating the study’s findings. These
findings are later corroborated with broader
theories to generate a conceptualization
that has a high theoretical generalizability
(Eisenhardt, 1989; Eisenhardt & Graebner,
2007; Yin, 2009).
Based on Miles and Snow’s framework
and the combined methodological
approaches, data on the mobile phone
industry were gathered and then developed
into a chronological time-based case. In this
way, the development of the industry could
be traced from its beginning to the present
time (finalized data collection date was 31
December 2010). The primary data utilized
were information gathered from sources
published in the public domain. The content
analysis methodology, with its ability to
handle numerous volumes of textual data,
was utilized to analyze and organize the
data into a case (Duriau, Reger, & Pfarrer,
2007; Krippendorff, 2004; Stemler, 2001;
Mohd Fuaad & Khairul Akmaliah, 2010).
The data cited are indicated in the text and
in the list of reference section.
The case was finally interpreted
based on Miles and Snow’s typology
and, if unfitting, other relevant strategy
theories. The above procedures enabled the
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
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Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
TABLE 1
Strategies under Miles & Snow business strategy typology
Strategy
Prospector
Defender
Analyzer
Reactor
4
Characteristics
- Continually explores and searches for new market opportunities, and generally acts as
an agent of change in the industry, and thus, is a first mover in the industry (McDaniel
& Kolari, 1987; Miles & Snow, 1978);
- Pushes for innovation and creativity in its operation, is always searching for new
customers and opportunities, aims for business growth, thus is generally involved in
higher risk activities;
- Emphasizes the need for a firm to be the first to introduce innovative products to
customers, and tries to seize the opportunities in identifying the present and future
needs of its customers (Miles et al, 1978).
- Focuses on securing and safeguarding a product or a market niche (Griffin & Page,
1996).
- Unlike prospectors, usually do not extensively search for opportunities outside its
focused niche (McDaniel & Kolari, 1987);
- Concentrates on dealing in a small number of narrow product/service domains,
serving current and well-defined customers, protecting its current market share, and
maintaining a steady growth (Miles et al., 1978);
- Vigorously protects its current market position and tries to maintain its hold on
customers in a certain market niche;
- Usually involves operating at low costs and improving the quality of its existing
products/services (Griffin & Page, 1996).
- Combines ‘prospecting’ and ‘defending’ strategies, in which it attempts to take full
advantage of opportunities aimed at profitability and growth (prospecting), while
also trying to minimize its business risks (defending) (Beekun & Ginn, 1993; Miles
et al., 1978);
- Strives to maintain its existing market position, while at the same time attempts to be
innovative in the industry;
- Closely monitors the actions of its main competitors or prospectors and quickly
imitates them; Acts as an imitator rather than an innovator (Griffin & Page, 1996);
- Has lack of consistent approach to strategizing (Griffin & Page, 1996; Miles et al.,
1978).
- Usually responds to pressures in its environment only when there is a strong force
to do so; Compared to its competitors, is more passive toward the events in its
environment and in maintaining its market share;
- Is aware of its environment, but generally tends to respond to events after they have
occurred (Griffin & Page, 1996; McDaniel & Kolari, 1987).
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
conceptualizing of strategic postures within
the environment in which they occurred, and
the identification of factors that influenced
them, while simultaneously achieving
theoretical generalizability.
The Malaysian telecommunications
industry comprises sectors of telephone
and internet services. The telephone sector
can be generally categorized into fixed and
mobile service subsectors. In this study, our
analysis focused exclusively on the mobile
phone service subsector. This industry
segment has two groups of customer base,
which are retail and corporate. It is important
to note that this study concentrated primarily
on the development of the industry/strategic
posturing of the mobile phone service
companies in relation to their retail markets.
CLASSIFICATION OF STRATEGIC
MOVES OF INDUSTRY PLAYERS
AND THEIR INFLUENTIAL
FACTORS
Telecommunication services comprise of a
range of services, including fixed telephone
line, mobile phone service, as well as
fixed and mobile broadband offerings. The
development of the mobile phone service
industry in Malaysia is marked by a number
of milestones (Refer to Appendix A), and the
trajectory of which is very much influenced
by government policies (particularly in
regard to the issuance of licenses to operate),
the market needs, the capabilities and
resources that the competitors have in hand,
and their actions and responses to others.
During the first 10 years (i.e. from 1984 to
1995), the industry was monopolized by two
players; the fixed line by TM and the mobile
service by Celcom. Subsequently, through
the government’s liberalization policy, the
industry was opened up to other players,
resulting in seven telecommunications
players. However, financial crises and
government’s intervention resulted in the
number of mobile phone service providers
being reduced to three in 2004, which
comprised of Celcom, Maxis and DiGi. In
2008, U-Mobile joined these three players,
and this increased the number of players in
the industry to four. By then, there were also
four players in the fixed line business, but
the sector remained monopolized by TM.
Utilizing Miles and Snow’s strategic
typology as our framework, we present
an analysis of the actions of mobile phone
providers according to the types of strategy
they have implemented.
Prospector: In this study, we define
prospecting strategy as an act of continuously
innovating to capitalize on new opportunities
with the aim of achieving firm profitability
and growth. Maxis, Celcom and DiGi can
be classified as prospectors. Celcom is a
prospector since it was the first service
provider to launch the GSM mobile phone
service in the country in 1988, and along
with Maxis, to offer 3G service in 2005,
and introduce 3G broadband in 2006. Both
Celcom and Maxis were the first to offer
BlackBerry smartphone service packages
in 2006. Maxis can also be classified as
a prospector because of its utilization of
satellite technologies (the first to have such
utility), which was made available by its
sister company, and it has generally been
the most innovative company in investing
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
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Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
and improving its infrastructure. In 2009,
Maxis became the first provider to offer its
postpaid customers mobile phone services
on board of certain flights, and was the first
to bring iPhone services into the Malaysian
market. In the same year, Maxis was also the
first to offer its customers integrated mobile
payment services.
In addition, DiGi can be considered as a
prospector for its reputation as an innovator
within the industry, and was voted the most
innovative company in Malaysia for three
consecutive years. It was this innovativeness
that contributed to the company’s success in
achieving the 25.5% subscriber market share
in the year 2008 compared to 19.8% in 2003.
The increase in the DiGi’s market share
was at the expense of Maxis (about 1%)
and Celcom (about 6%) (MCMC, 2009b).
DiGi was the pioneer in implementing a full
digital network service in 1995, launching
prepaid services in 1998, and utilizing
ePay’s digital reload service in 1999.
DiGi was also the first to utilize market
segmentation strategy. These actions were
quickly imitated by its rivals, Celcom and
Maxis.
The accumulative innovative efforts by
these players contributed to their companies’
profits and overall industry growth. DiGi’s
account showed losses from 2003 to 2005;
so did Celcom in 2005, but all the three
companies were profitable in 2006, 2007,
and 2008. The combined revenue of Celcom,
Maxis and DiGi was about RM10 billion in
2003. This figure increased to RM18.42
billion in 2007, reflecting an average market
growth revenue of about RM1.65 billion
6
annually (or 17%) from 2003 to 2007. By the
end of 2009, the mobile telecommunications
industry’s revenue was RM26 billion, with
RM335 million contributed by the mobile
broadband businesses (DiGi.Com Berhad,
2003; 2004; 2005; 2007; MCMC, 2004;
2007b; 2007d; 2009b).
In more specific, Celcom can be
classified as a service prospector mainly
because it was the first telco to be awarded
with the GSM license in Malaysia. It was
also one of the first two licensees (along with
Maxis) to introduce 3G broadband services.
The introduction of Celcom’s 3G service was
facilitated by TM, its parent company, which
at the time, was the monopoly wholesaler
for telecommunications infrastructure
technologies. The introduction of its
Blackberry product was also facilitated by
its parent company’s collaborative networks
with Vodafone. On the other hand, Maxis,
which has also benefited from collaborative
networks for its Blackberry offerings, is
an infrastructure prospector because of
its huge investment and main strengths in
infrastructure installation and operation.
This is possible since Maxis is a part of a
resource-rich international conglomerate.
Meanwhile, DiGi is a mixed prospector in
that it is the top Malaysian service provider
of prepaid service and the inventor of many
segmented service packages. In strategizing
its growth, DiGi has gained advantage
in having Telenor as its parent company
and also sister companies which had
already implemented 3G and other relevant
technologies in other countries. Many of
DiGi’s top management team members, who
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
have previously been trained at its parent
company, also lend their experiences in
developing some of the strategies executed
by DiGi in its operations.
I n s u m m a r y, t h e m o b i l e p h o n e
companies are able to utilize prospecting
strategies mainly because they have the
resources and capabilities, including the
access to the resources and capabilities of
their parent companies. Specifically, these
parent companies’ huge financial resources
and capabilities, which are earned in large
part through internationalization, serve
as an important foundation in lending
appropriate resources to their subsidiaries.
These resources include the availability
of technology and capabilities to forecast
technological development and change,
and to create and sustain collaborative
networks which are important elements for
new technological service introduction and
firm growth.
Defender: In this study, we define defending
strategy as acts of protecting the current
market share and operating in a market
niche. Up to 2008, the industry players were
generally prospectors and analyzers rather
than defenders. This is mainly because the
three main players were targeting broad
market rather than niche market. Also,
until 2007, the need to protect their market
share was not a major issue as the market
was large enough for all three players.
While DiGi was building its market share
from 2003 to 2008, there were still many
Malaysians without mobile phones. The
penetration rates of mobile phones usage
were 43.91% in 2003, 56.68% in 2004,
74.63% in 2005, 73.2% in 2006, 85.1% in
2007, and 98.9% in 2008. This changed in
2008 when the market reached subscription
saturation, and the three companies were
threatened by the entry of a new company,
U Mobile, and the imminent introduction
of the Mobile Number Portability. By the
first quarter of 2009, the subscription rate
had surpassed the 100% mark, which was at
100.1%, and this figure increased to 106.2%
by the fourth quarter of 2009. Therefore,
starting 2008, the mobile phone companies
have begun to divert their attention towards
pinching each other’s customers rather than
focusing on new market penetration.
In 2009, the mobile virtual network
operators (MVNOs), which include XOX
and TuneTalk, and which utilized Celcom’s
mobile infrastructure in offering their
services, began to enter the market. Another
MVNO is Happy Prepaid, which is DiGi’s
internal project that was launched at the
end of 2007. While Happy Prepaid was
initially targeting at new Malaysian mobile
phone users, it changed its focus to serving
predominantly Malay communities in
Kelantan and Terengganu in the mid if 2009,
areas where the company had low number
of subscribers
Analyzer: Analyzing strategy is a
combination of defending and prospecting
strategy. More specifically, in this study, it
is defined as the act of protecting the current
market share and/or quickly imitating
prospector’s strategy. In this regard, Maxis,
Celcom and DiGi are all aggressive in using
the analyzing strategy. There are many
instances of the analyzing strategies utilized
by the industry players. Both Celcom
and Maxis launched their prepaid service
plans following DiGi’s success in 1998,
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
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Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
and both also introduced their respective
3G service at about the same time in the
second quarter of 2005. Maxis offered its
3G broadband service in September 2006,
just after Celcom launched its service in
mid 2006. DiGi, which did not have a 3G
license, had applied for it at the end of
2005, and a WiMAX license in 2006, but
both the applications were initially rejected.
After receiving the license in 2007, DiGi
introduced its 3G services in February 2008
and 3G broadband service in 2009. Once
again, just like the launching of their 3G
services, Maxis and Celcom introduced their
BlackBerry services at about the same time
at the beginning of 2006. This move was
later followed by DiGi. Moreover, DiGi’s
market segmentation strategy was also
quickly emulated by Maxis and Celcom.
From 2004 to 2007, the strategy of
protecting the market share among the
players was not apparent, and this was
mainly because the market was large
enough for everyone. It was not until
2007 and 2008 that the industry players
started to show some defensive acts by
pinching other companies’ market share
due to several important developments in
the industry. These include U-Mobile’s
entry into the market in March 2008 and
Mobile Number Portability’s introduction
in October 2008, as well as mobile phone
subscription saturation which began in late
2008. All these events forced the three big
companies to be defensive in protecting their
own market shares, while prospecting over
their competitors, thus making analyzing
their important strategy beginning around
8
2007 and 2008. Moreover, the levelling of
the playing field with DiGi obtaining the
3G license in 2008 also allowed for a fullfledged analyzing strategy by all companies.
DiGi was previously at a disadvantage
because it was unable to offer 3G services
for a few years (i.e. from 2006 to 2009),
while its competitors had the ‘free hand’ to
capture the market.
Meanwhile, the entry of the MVNOs
in mid 2009 was not a big threat to Maxis,
which had two MVNOs agreements in
hand, and Celcom, which had eight MVNOs
agreements, as the MVNOs became another
revenue source for them. For DiGi, however,
these were threats to be reckoned with,
as the MVNOs were targeting mainly the
prepaid markets, which had been DiGi’s
domain for years.
Nevertheless, after 2008, Celcom, Maxis,
and DiGi, are generally all true analyzers.
They have quickly imitated prospecting acts
by rivals, while also aggressively protecting
their market shares. By then, all the three
mobile phone companies have an almost
equal composition of Average Revenue
per User (ARPU) (combined ARPUs of
both prepaid and postpaid services). The
difference in the size of their market share
is also getting smaller, and their products
and services are getting similar in terms of
offering and pricing.
Reactor: In this study, a reacting strategy
involves responses by a firm to the actions
in its environment. Our findings do not
explicitly show any of the mobile phone
companies utilizing this strategy. However,
we have identified two emergent classes of
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Strategic Posturing of Malaysian Mobile Phone Service Providers
strategy adopted by the group of late entry
players in the Malaysian mobile phone
service industry, which are challenging and
niche strategies.
Emergent types of strategy: U Mobile is
a threat to the big three, particularly with
it having a 3G license. The firm, however,
is a latecomer, and is not equal in regard to
infrastructure/sales structure development
to the incumbents. Nevertheless, it could
become a bigger threat later, i.e. when its
structures are more developed and ready.
Since its entry, the firm has advertised the
most among the four, and also launched
heavy promotions, including giving free
subscriptions to induce purchase/switching.
Being a part of resource-rich conglomerate,
U-Mobile has the resources to act as an
industry challenger. Therefore, we define
challenger as a firm that has the capability
and resources to take on the current dominant
market players
Another emergent category of strategy
is the niche market player. This strategy is
apparent among the industry newcomers
MVNOs. At the disadvantage of being
industry ‘laggards’, not having a full
license to operate services on their own,
and operating under-developed sales and
distribution networks, the MVNOs cannot
be expected to act as full-fledged challengers
to the current market leaders. Thus, the
most suitable option for these firms is to
focus their effort on specific segments of
the markets (niche) and try to build depth of
usage in those markets. An example of this
strategy is TuneTalk’s effort in capturing ‘inflight’ pre-paid market through collaboration
with its parent company, AirAsia Berhad.
The strategies adopted by the industry
players over time are summarized in Table 2.
The above highlights the evolutionary
nature of strategizing among the players
within the industry—how these players
Table 2
Strategies adopted by the industry players over time
Adopted
strategies
1984-1992
Prospector
Analyzer
1993-1996
Year
1997-2000
2001-2004
Celcom
DiGi
DiGi
Maxis
Maxis
Celcom
DiGi
Monopoly
Defender
All 3
players
were
engaged
in market
building
strategy
2005-2008
Maxis
Celcom
DiGi
Maxis
DiGi
-Maxis
Celcom
DiGi
Maxis
Celcom
DiGi
--
--
Reactor
--
--
--
--
--
Challenger
--
--
--
--
U-Mobile
Niche Player
--
--
--
--
XOX
MVNOs
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
--
2009-2012
9
Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
evolved in regard to the types of strategies
they implemented, which enriches Miles and
Snow’s strategic adaptive conceptualization.
The fact that some of the companies’
strategic postures are adaptive (e.g.
prospecting) indicates that some of these
strategies are internal strategic choices, in
which they are selected by the managers
without them being heavily influenced by
competitive elements (Child, 1972). On
the other hand, the empirical data also
underline the ecological perspective of
strategic posturing (e.g. analyzing), in that
the strategy implemented may be directly
induced by rivals’ actions (environmental
determinism) (Burgelman, 1991; Hrebiniak
& Joyce, 1985). The tangibility and visibility
nature of their services lend themselves to
intense imitation, allowing isomorphism
among these service providers in defining
and institutionalizing themselves within
the industry. These companies’ strategic
posturing reflects their institutionalization
intent and actions (Dacin, Goodstein, &
Scott, 2002; Daft, 2010; Meyer & Rowan,
1990). Taken together, the theories of
adaptation, in combination with ecological
perspective and institutionalization theory,
are important theoretical foundations in
explaining strategic posturing of Malaysian
mobile phone service providers and factors
that influence this act.
CONCLUSION
At present, the three major mobile phone
companies (namely, Celcom, Maxis, and
DiGi) play the role of analyzer as the mobile
phone service market reached subscription
10
saturation. However, prior to 2008, when the
market had yet to mature, and competition
had yet to intensify, with the Mobile Number
Portability had yet to be introduced, and
U Mobile and the MVNOs had yet to
enter the market, these three companies
were predominantly adopting prospecting
strategies by being the first mover of many
actions. However, the newcomer in the
industry, U-Mobile, which is a part of a
resource-rich international conglomerate,
adopted a challenging strategy, while the
new MVNOs utilized a niche strategy,
with each focusing on a specific segment
of the market. This is due to the fact that in
a saturating industry, pinching competitor’s
market share and utilizing the niche strategy
are the main strategic options.
In summary, the mobile phone service
companies’ strategies are shaped by the
capabilities and resources that they have
in hand, including access to capabilities
and resources of their parent and sister
companies. Specifically in a highly
competitive technological service industry,
strategic posturing requires huge financial
resources, availability of infrastructure,
t e c h n o l o g y, a n d s a l e s s t r u c t u r e ,
as well as the capabilities to forecast
technological development and change,
develop new products and services, and
manoeuvre around government’s policies.
Internationalization and collaborative
networks are important in instituting these
resources and capabilities. Moreover, this
study, which expands the application of
Miles and Snow strategic typology within
technological service context, identifies two
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
other aspects of strategic posturing; namely,
the ‘challenging strategy’ and the ‘niche
strategy’, in explaining the strategic actions
taken by the players. These empirical data,
which refined Miles and Snow’s strategic
adaptive conceptualization, also highlight
the importance of organizational ecological
perspective and institutionalization theory
in explaining the act of strategic posturing.
Understanding the factors influencing
the companies’ growth and development
allows policy makers to design and
implement necessary policy instruments and
to further promote the growth of the industry.
However, while this study elaborates the
mobile phone service providers’ strategies
vis-à-vis their competitors’, and against
some important policy interventions
(for example, DiGi’s application for a
3G spectrum), a full analysis of their
responses towards government policies
and related institutional arrangements and
interventions are required in the future.
Already the country’s government-backed
monopolized backbone telecommunications
infrastructure has been the subject of
controversy in several industry segments,
with it being alleged to lead to expensive
and slow Internet connection, and sluggish
development of mobile digital content.
Empirical data and analysis of this matter
are crucial in view that the industry is
designated as a strategic vehicle in achieving
the developed country status, and thus,
the development of information-economy,
in which telecommunications serve as
important infrastructural technologies, is
critical.
In this study, the corporate and 3G
broadband businesses of these companies
are not the main focus. Due to their
importance, future studies that include a
full analysis of the mobile phone service
providers’ businesses to fully capture their
competitive situation and corresponding
actions are needed. In particular, responding
and joining in to the recent debates which
centred on technologies and markets of
broadband that are major elements of
telecommunications infrastructure of today
and in future, is crucial (e.g., Badasyan,
Shideler, & Silva, 2011; Gomez-Torres
& Beltran, 2011; Madjdi & Husig, 2011;
Thompson & Garbacz, 2011).
ACKNOWLEDGEMENTS
The study was financially supported by UPM
FRGS Grant, entitled “Conceptualizing
Mobile Telecommunications Technological
Innovations and Industry Growth”, No.: 0504-10-785FR.
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Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
APPENDIX A
CASE OF MALAYSIAN MOBILE PHONE SERVICE INDUSTRY
DEVELOPMENT
The development of the industry can be divided into several important phases, which are
as follow:
The Early Years—Monopoly by Stateowned Telekom Malaysia
Telecommunications services in the form
of telephone lines and telegraphs were
first introduced into the country in 1920s.
Improvements in the telecommunications
infrastructure led to its diffused usage
within the industrial sectors and the general
public throughout 1950s and 1960s. Since
1957, the phone service was operated by
the Telecommunications Department. In
1987, however, this government-owned
fixed line operator was turned into a
public-listed company under the name
of Syarikat Telekom Malaysia Berhad
(STMB). One year later, it formed a mobile
phone subsidiary called STM Cellular
Communications, which provided a global
system of mobile communication (GSM)
services to Malaysians. In 1990, Syarikat
Telekom Malaysia Berhad (STMB) changed
its name to Telekom Malaysia Berhad
(TM) (MCMC, 2004; Mesher & Zajac,
1997; Sivalingam, 2009; The National
Telecommunication Policy of Malaysia,
1994-2020, 2008).
From 1957 to mid-1980s, only fixed
telephone line service was available to
Malaysians. This situation changed in 1984
when the first mobile phone service was
offered in the country with the launching
of Telekom Malaysia’s ATUR mobile
18
telecommunications services. In 1992, TM
sold some of its shares in STM Cellular
Communications to Fleet Group, which later
sold them to TRI Group. This new owner
changed the company’s name to Celcom
(Mesher & Zajac, 1997; Sivalingam, 2009).
The Implementation of Malaysian
Telecommunications Policy—the
Emphasis on Industry Growth
Beginning in early 1990s and through
its National Telecommunications Policy
(1994-2020) implementation, the Malaysian
government started to emphasize the need for
high growth within the telecommunications
sector. Its aim was to transform the sector
into one of the major vehicles to achieve
Malaysia’s developed country status by
2020. As a part of this policy intervention,
licenses were given to companies involved
in various segments of the sector, including
mobile phones, pagers, and related services
(Ninth Malaysia Plan, 2006-2010; The
National Telecommunication Policy of
Malaysia, 1994-2020, 2008; Zita, 2004).
By 1995, six more new mobile
telecommunications service providers
(telcos) entered the market, making the total
number of players to seven. These service
providers included Telekom Malaysia,
Celcom, Maxis, Mobikom, Mutiara
Swisscom (later renamed DiGi), Sapura
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
Digital and Time Wireless (Zita, 2009). Of
these seven, two faced bankruptcies during
the financial crisis of 1997 and 1998, and
with the Malaysian government insistence,
they had merged with other telcos with
stronger financial standing. This reduced
the number of telcos to five, i.e. Celcom,
DiGi, Maxis, TMTouch and TIME. In 2003,
TIME sold its mobile business to Maxis,
whereas ongoing internal problems resulted
in Celcom being acquired by Telekom
Malaysia (Alphonse, 2004; Mesher &
Zajac, 1997). Celcom was a public listed
company on the Bursa Malaysia, and after
the acquisition, Celcom became a private
operator under Telekom Malaysia (Celcom,
2010).
The Rapid Industry Growth and its
Oligopolistic Formation
By 2004, the industry had consolidated
further into three players comprising
Celcom, Maxis and DiGi. This was the
result of two events: the first event was
Celcom’s new parent company, Telekom
Malaysia, merging Celcom with its mobile
service subsidiary, TMTouch; and, the
second event was DiGi’s acquisition of
TIME (Alphonse, 2004; MCMC, 2005;
Mesher & Zajac, 1997). This period marked
the beginning of an intense competition
within the industry. On the whole, as a result
of the combined operations of Celcom and
TMTouch under Telekom Malaysia, there
were a total of four telecommunication
providers in 2004: Telekom Malaysia
(which included Celcom), DiGi, Maxis and
TIME. Telekom Malaysia directed its effort
on the fixed line business, while allowing its
subsidiary, Celcom, to concentrate on the
mobile business. Similarly, DiGi and Maxis
were also focusing on the mobile business,
while TIME served mainly wholesale and
corporate mobile customers (MCMC, 2004;
2005).
In regard to fixed telephone line
services, several new players joined the
industry in late 1990s. By 2004, however,
only TM, Maxis, TIME and DiGi were still
running fixed line operations. This number
was further reduced to three in 2006 when
DiGi exited the fixed line market. In regard
to the control of the fixed line market, by
2003, TM held a major revenue share,
which was at 86% in 2004; 88% in 2005;
90% in 2007 and 2008; and 91% in 2009;
with the remaining percentage was shared
between TIME and Maxis (MCMC, 2004;
2005; 2006; 2007b; 2008b; 2009b). Since
1988, the number of mobile phone users
was rising at an exponential rate, leading to
it surpassing the number of fixed-line phone
users by the year 2000 (MCMC, 2007d).
From 2000 to 2008, the number of mobile
phone users increased at an average rate of
8.6% per year. By the first quarter of 2009,
the percentage of Malaysian mobile phone
subscriptions over the total population
exceeded the 100% mark, which was at
100.1% and by the end of 2009, the number
increased further to 106.2% (MCMC,
2009b).
The second mobile phone service
provider, Maxis, was a subsidiary of Usaha
Tegas. It was established in 1993 and began
to offer its mobile phone service in 1995.
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
19
Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
The company was then listed on Bursa
Malaysia in 2002 (Maxis Communications,
2009). DiGi, the third mobile phone service
provider, began its operation in 1995 as
Mutiara Swisscom, and was the first telco in
Malaysia to offer a fully digitalized network
service. In December 1997, the company
was listed on Bursa Malaysia and had its
name changed to Mutiara Swisscom Bhd.,
and later to DiGi Swisscom Bhd. In January
1998, DiGi became the first telco to offer the
prepaid service to its mobile phone service
customers. Maxis and Celcom, its two main
industry rivals, followed suit later in the
same year. In October 1999, DiGi entered
into an agreement with e-Pay Malaysia to
utilize the latter’s network of terminals to
boost its visibility and expand its prepaid
customer base. Within six months, in April
2000, this move was imitated by Maxis
and Celcom (Carlsson, 2008; Khairul
Akmaliah, Mohd Fuaad, Shamshubaridah,
& Hänninen, 2008).
In September 2001, DiGi was
transformed into a Malaysian-based foreignowned mobile telco when Telenor ASA took
over the control of its management with the
purchase of 61% of its shares (Carlsson,
2008). In June 2002, DiGi began offering
its Automatic International Roaming and
General Packet Radio Services (GPRS),
and started collaborating with Citibank and
MOL AccessPortal Bhd to offer an electronic
alternative for its prepaid subscribers to buy
their reload credits. In August 2003, DiGi’s
mobile service subscribers increased to
two millions, and as a part of its efforts to
retain this growing customer base, it began
20
offering a new postpaid package that can
self-adjust the service rates.
The Introduction of 3G Services
In 2003, Maxis and Celcom were granted
licenses by the Malaysian government
to operate 3G services (“Maxis
Communications 3G Pilot Network”,
2011). Later, in the middle of the same
year, DiGi introduced user-downloadable
online statements, as well as the Enhanced
Data Rates for Global Evolution (EDGE)
technology to its customers, which were
parts of an improvement on its GSM
solution (DiGi.Com Berhad, 2009b). In
2004, Celcom intensified its marketing
efforts, lowered its SMS rates, introduced
cheaper starter packs, which contain the
SIM card that was needed by subscribers
to initiate and use its prepaid service,
and offered upgraded versions of prepaid
services to capture new customers. By the
end of 2004, the subscriber market shares
for the three players were as follows: Maxis
41.7%, Celcom 36.1%, and DiGi 22.2%
(MCMC, 2009b). During 2004, Maxis
via its sister company, Binariang Satellite
Systems, began to utilize the third MEASAT
satellite to create data networks that enable
it to serve Malaysian customers in diverse
geographical areas. Its sister company had
previously launched MEASATs 1 and 2 in
1996) (Maxis Berhad, 2011).
In the second quarter of 2005, both
Celcom and Maxis became the first telcos
to introduce 3G mobile phone service
in Malaysia (Celcom, 2010; Maxis
Communications, 2009), and, later, in
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
mid-2006, Celcom became the first mobile
telco to offer 3G HSDPA broadband
service (Malaysia Broadband Overview,
2010). In September of the same year, Maxis
imitated Celcom’s action by offering its 3.5G
(HSDPA) broadband service. TIMEdotcom
was also granted a 3G license in the same
year, thus increasing the number of license
holder for this technology to three. Maxis
and Celcom’s 3G broadband services, which
targeted home and consumer users, utilized a
3G packet-based mobile telephony protocol
and a High Speed Downlink Packet Access
(HSDPA) technology (Malaysia Broadband
Overview, 2010; Maxis Communications,
2009). By the end of 2006, Maxis and
Celcom 3G services came in two packages:
a) Integrated 3G services, which enable
customers who owned devices with 3G
capabilities to have more efficient voice and
video communications as well as Internet
access; and b) Modem-based 3G broadband
services, which allow customers who used
dongles attached to their notebooks, to
access Internet.
In November 2005, DiGi, which had
yet to own a 3G license, submitted an
application for the licence to the Malaysian
Communication
and
Multimedia
Commission (MCMC). In the same month,
DiGi began to reduce the price of its prepaid
starter packs, from RM9.90 to RM8.50.
The availability of 3G services in
Malaysia resulted in an increase in postpaid
service subscription. Within the mobile
phone services, the number of prepaid
service subscriptions continued to rise
since its introduction in 1998. By the year
2000, the number of postpaid and prepaid
subscriptions was almost equal. Since 2001,
the continued growth in the number of the
prepaid subscribers resulted in it to exceed
that of the postpaid customers. By the end
of 2008, the prepaid service had 80.14%
(22.169 million) of total subscription, while
postpaid service had 19.9% (5.544 million).
However, the growth of the prepaid market
began to decline in 2004, while that of
the postpaid market accelerated, and by
the end of 2009, the postpaid market had
taken over 1% of the prepaid market share.
The increase in size of the postpaid market
could be attributed to the increase in the
use of Internet amongst mobile phone
users, which led to, among others, prepaid
customers switching to postpaid service.
Unlike prepaid customers, whose usage of
the services were constrained by the amount
of credit available in their account, postpaid
customers paid their bills after utilizing the
service, thus their service usage, including
accessing the internet, was generally not as
restricted (Business Monitor, 2009b; Goh,
2008g). The increase in postpaid service
subscription was also due to the decrease
in price of advanced mobile devices that
support internet connectivity, as well
as the high availability of 3G Internet
connections.
Since 2006, the three mobile phone
service companies competed fiercely in
terms of market share, product offering,
and pricing (MCMC, 2007d). Generally,
a telco’s market share is measured in two
ways; a) its revenue market share, which
is the amount of revenues earned by each
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
21
Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
company, divided by the total amount of
revenues accumulated by all companies,
and b) its subscriber market share, which
is the number of subscribers of each
company, divided by the total number of
subscribers for all companies.
The overall Average Revenues per
User (ARPU), or amount of revenues
generated by a telco over the number of
its subscribers, for all three mobile phone
service companies had continued to drop
since 2003, from 241 in 2003, to 222 in
2004, to 173 in 2005, and to 171 in 2006
(Khairul Akmaliah & Mohd Fuaad, 2011).
The Growth of 3G and Smartphone
Services
In February 2006, Celcom’s parent company,
TM Berhad, sealed a partnership deal with
Vodafone, which enabled Celcom and its
sister companies to access international voice
and data roaming technologies, including
Blackberry (Fauziah Muhtar, 2006). In the
following month (March 2006), Maxis,
in collaboration with Research in Motion
(RIM), launched Blackberry solutions
for its corporate and retail customers
(RIM Press Release, 2006). In the same
month (March 2006), DiGi’s 3G license
application was turned down, which was
probably due to it being a foreign-controlled
telco, with Telenor-- a Norwegian-based
telecommunications conglomerate, owning
the majority of its shares (Sidhu, 2007). In
April 2006, DiGi made a second bid for the
3G license, which was again rejected, even
though two other applicants, TimedotCom
and MiTV (which later changed its name
to U Mobile) were granted licenses. In July
22
2006, DiGi requested for a license to offer
Internet services using WiMAX technology
(Goh, 2007b), however, this application,
together with those from Celcom and
Maxis, was also turned down. On the
other hand, in September 2006, Celcom’s
strategic alliance with Vodafone resulted
in it launching a BlackBerry Enterprise
Server, which targeted enterprise (SMEs)
and corporate markets (Celcom to distribute
Blackberry Pearl, 2007). In October 2006,
DiGi introduced a new postpaid family
plan, and a month after this launching,
the company started its Yellow Fellow
Coverage campaign (Carlsson, 2008).
Even though not offering 3G and
WiMAX services, DiGi had expanded its
subscriber market share from 19.8% in 2003
to 27.2% at the end of 2006, with Maxis
and Celcom’s market share at the time were
at 42% and 31%, respectively (MCMC,
2009b). By the end of 2006, DiGi group
revenue was RM3.652 billion (increased
from RM2.884 billion in the previous year),
and turned its operating losses (from 2003
through 2005) into profits of RM1.09 billion
(Goh, 2008b; Malaysia Norway Business
Council, 2006). During the same period,
Celcom’s revenue was RM4.4 billion,
while Maxis’ was RM7.71 billion (MCMC,
2007b).
Corporate Restructuring of TM (Celcom)
and Maxis, and the Awarding of 3G
License to DiGi
By mid 2007, Celcom had sealed deals
with three mobile virtual network operators
(MVNOs), Merchantrade Asia, REDtone
International, and TuneTalk. In these
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
partnerships, Celcom opened its network
infrastructure to the MVNOs to enable them
to offer their respective mobile services.
These arrangements not only brought in
side revenues to Celcom, they also provided
Celcom with the opportunity to gain more
brand visibility, and helped the company
maximise the usage of its network capacity
(Raj, 2007). In June 2007, the company
launched its Blackberry Internet Service
smartphones to individual users, which
was the first such service in the country
(“Celcom to distribute Blackberry Pearl”,
2007).
At the 2007 Frost & Sullivan Malaysia
Telecoms Awards, TM and Maxis were
jointly presented the Service Provider of
the Year Award. In April 2007, Binariang
GSM Sdn Bhd (the parent company of
Maxis) offered to buy back the entire
remaining shares of Maxis for RM17.46
million, reportedly, in its efforts to support
its operations in India and Indonesia.
Consequently, Maxis was delisted from
Bursa Malaysia in July 2007.
In November 2007, DiGi was given
the approval by the Malaysian government
to obtain a 3G license, transferable from
TimedotCom. In return for its 3G license,
the latter was to receive a 10% stake in
DiGi, or 27.5 million shares valued at
RM649 million. Meanwhile Telenor’s
control of DiGi was to be reduced to 49%.
This arrangement, which transformed DiGi
into a Malaysian-owned business entity,
satisfied the regulatory requirement for
its 3G license operations (TeleGeography,
2007). With the 3G technology upgrade,
DiGi could improve its existing mobile
phone services by offering video calls, and
providing a more efficient Internet access, as
well as introducing new Internet broadband
services. The process of transferring the
3G license from TimedotCom to DiGi
was completed in January 2008, and by
mid 2008, the share swap from DiGi to
TimedotCom was concluded (“DiGi, Time
trading suspended”, 2008; Goh, 2008c).
While DiGi’s early strategy was to
focus on prepaid customers, beginning in
mid 2000, it began to make a vigorous push
into the postpaid market. This organized
move began in 2007 with the introduction
of DiGi 1Plan (DiGi.Com Berhad, 2009b).
In December 2007, DiGi launched its Happy
Prepaid service as an experimental MVNO
project by offering comparatively lower
standard call rates, and targeting mainly
those who have yet to use mobile phone
service. Analysts viewed the launching of
Happy as DiGi’s response to impending
competitions resulted from the entry of new
MVNOs, such as TuneTalk, which would
move into DiGi’s prepaid market domain
(“DiGi’s ‘Happy’ to defend”, 2007; “DiGi
wants customers”, 2007).
By the end of 2007, DiGi’s revenues
continued to rise to RM4.36 billion, from
RM3.652 in the previous year (Goh, 2008b;
Malaysia Norway Business Council, 2006),
while Celcom’s revenue grew from RM4.4
billion (2006) to RM5 billion, while Maxis’
revenue was RM9.06 billion (MCMC,
2007b).
Between September 2007 and March
2008, Telekom Malaysia Bhd (TM)
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
23
Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
underwent a corporate restructuring
effort, which resulted in TM grouping its
businesses into two entities, TM and TM
International. Since then, TM International
was comprised of Celcom and TM other
regional mobile business units. In April
2008, TM International was listed on Bursa
Malaysia, and changed its name to Axiata
Berhad. Celcom, being a subsidiary of
Axiata Berhad, was renamed as Celcom
Axiata Berhad (Axiata Group Berhad,
2010). In the third quarter of 2008, Celcom
introduced BlackBerry Bold Smartphones
and its Celcom Power Tools Mobile Email
Plans; Celcom then had a total of 8.254
million subscribers (Celcom, 2010). Since
2005, Celcom’s 3G coverage had been
expanding rapidly, and by 2010, it reported
a 95% 3G mobile service coverage in most
areas in Klang Valley, Johor Bahru, Melaka,
Kulim and Penang (Celcom, 2010).
By the end of 2007, the control for
subscriber market share began to slowly
reach parity for the three mobile phone
companies, with Maxis at 42%, Celcom
31%, and DiGi 27% (MCMC, 2007b). At
the end of 2007, Maxis’s subscriber number
increased to 9.7 million or 41.6% market
share from 8.1 million subscribers (or 41.5%
subscriber market share). Its numbers were
4.5 million (or 40.5% market share) in
2003, 6 million (41.7%) in 2004, and 7.9
million (40.3%) in 2005. DiGi’s number
of subscribers at the end of 2007 was 7.1
million (27.5%), which increased from
2.2 million (19.8%) in 2003 to 3.2 million
(22.2%) in 2004, to 4.8 million (24.5%) in
2005, and to 5.31 million (27.2%) in 2006.
24
Celcom’s subscription was registered at 7.2
million (31%) in 2007, which increased
from 6.1 million (31.3%) in 2006, and
6.9 million (35.2%) in 2005, 5.2 million
(36.1%) in 2004, and 4.4 million (39.6%)
in 2003 (MCMC, 2007b).
Industry-wise, in 2007, the combined
(group) revenue of Celcom, Maxis and DiGi
was RM18.42 billion, which had increased
from RM9.991 billion in 2003. This points
to an average increase of market growth
revenue of RM1.686 billion per year (or
16.87%) from 2003 to 2007. DiGi recorded
losses from 2003 to 2005, while Celcom
too was in the red in 2005, but all three
telco made profits in 2006, 2007, and 2008
(Mohd Fuaad & Khairul Akmaliah, 2009).
As of 2007, Malaysians mostly utilized
mobile phone for voice calls, SMSs and
MMSs, while other data services usage,
including Internet access via mobile phones,
was quite low, which was at 14% (MCMC,
2007a; 2007c). This low utilization rate
could be due to the use of low-end mobile
devices among the majority of subscribers
at that time, and for the prepaid customers,
their mobile Internet usage was further
constrained by the amount of prepaid credit
they had.
Entry of U Mobile and Implementation of
Mobile Number Portability
In March 2008, an industry newcomer, U
Mobile launched its 3G broadband service,
Surf with U, and this was followed by the
introduction of its postpaid mobile phone
service in April 2008. Shortly thereafter,
in July 2008, it began offering its prepaid
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
service (U Mobile, 2010a). This increased
the number of mobile phone service
companies in Malaysia to four, and further
intensified their rivalry in the mobile phone
and broadband services markets. With its
entry, U Mobile implemented a number of
substantial promotions, such as charging
the lowest fee for postpaid service and
offering a two-month free subscription for
its 3G broadband service to capture some
market shares from the three incumbents
(“U Mobile launches”, 2008). In July 2008,
which was in its fourth month of operation,
U Mobile accumulated 100,000 combined
subscribers for its postpaid and prepaid
services (U Mobile, 2010a). By the end
of July 2008, U Mobile introduced two
additional postpaid services to attract more
customers.
By March 2008, DiGi’s postpaid
customers had increased by nearly half,
which was about twice the postpaid market
growth rate of 21% of that time. In June
2008, DiGi’s net profit increased by about
19% from the preceding year to RM589
million. According to the company, this
growth was attributed to a greater amount
of mobile airtime used by its subscribers,
which was resulted from its innovative
offerings (“DiGi first-half”, 2008). To
maintain the growth of its postpaid market,
in July 2008, the company introduced
its expanded postpaid package, which
serviced both the infrequent and the regular
subscribers. This latest offering reflected
its careful market segmentation, and was
different from the earlier DiGi’s Postpaid
1Plan package. The latter, which was offered
to the market a year earlier, was designed
to cater to all customers, regardless their
demographic differences (Goh, 2008d).
These efforts were believed to be a part of
DiGi’s strategy in handling the threat of
Mobile Number Portability introduction at
the end of 2008 (Goh, 2008f). In September
2008, as a part of its customer retention
strategy, DiGi provided its complimentary
RM10,000 personal accident insurance
package to those who had been subscribing
to it services for at least three months
(“DiGi: Plan for 3G”, 2008). By the third
quarter of 2008, DiGi’s percentage for the
postpaid market share began to rise from 7%
in 2005 to 16% (Business Monitor, 2009a).
With the impending introduction of
Mobile Number Portability at the end of
the 2008, by middle of that year, all mobile
phone companies braced themselves for an
even greater competition. As the industry
was expecting more customer migrations
from the prepaid service to the postpaid
service, all mobile phone service companies
began to aggressively offer new services
and implement heavy promotions in their
respective postpaid segment. Maxis started
to repackage its postpaid plans and introduce
a new prepaid service, called Hotlink365,
which specifically catered the low usage
segment. Maxis’ Hotlink365 was soon
imitated by DiGi through the introduction
of its new extended prepaid plan. There was
an industry rumour circulating about Maxis’
plan to bring iPhone into the country. The
newest mobile telco, U Mobile, which by
then had attracted 100,000 subscribers, also
started to offer three new postpaid services
(Leong, 2008).
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
25
Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
By then, DiGi had launched four
new postpaid plans, with one offering
subscribers, to any network at anytime, text
messaging and free local voice calls (Leong,
2008). DiGi had also established porting
centers and waived the porting fees to enable
competitors’ subscribers to easily switch to
its services. It also opened up its 1Low Flat
Rate to all other lines used by its subscribers.
By October 2008, the company announced a
44% increase in the number of its postpaid
subscribers (850,000) from mid 2007 to mid
2008 (DiGi.Com Berhad, 2008; 2009b; Goh,
2008f). A month later, with the introduction
of the Mobile Number Portability, DiGi
assigned 1,000 staff members to market its
services (DiGi.Com Berhad, 2009b). In the
same month, it also began opening retail
concept stores. All these were in addition to
its heavy investments to upgrade its network
infrastructure to increase service quality
throughout 2008 (“DiGi launches”, 2008;
Goh, 2008a).
The competition was further intensified
when the Mobile Number Portability
was introduced to Malaysian subscribers
on October 15 2008. Mobile Number
Portability, which allows subscribers to
replacing service operators without changing
their phone numbers, was expected to
intensify customer-pinching and pricecutting war within the industry (Song,
2009a).
In 2008, DiGi’s MVNO Happy Prepaid
appeared to be changing its strategy from
offering low costs prepaid to all, to providing
services in areas where it lacked visibility.
By 2009, Happy was re-launched in the East
26
Coast states of Kelantan and Terengganu
with the aim of doubling Happy’s market
share by mid 2012 (Business Times, 2011).
By December 2008, DiGi.Com Berhad,
with its shares traded on Bursa Malaysia,
was an investment holding firm with two
subsidiaries: a) DiGi Telecommunications
Sdn. Bhd. (DTSB), which was responsible
for establishing, maintaining and providing
telecommunications and related services;
and b) Pay By Mobile, which handled the
remittance of fund, and provided services
and products that use online payment as their
main method of transaction. DTSB, in turn,
operated a subsidiary, DiGi Services, which
was responsible for property management
and renting, and other related activities.
The other subsidiary, Djuice.Com, was at
that time an inactive business. From 2006 to
2008, DiGi was voted the Most Innovative
Company in Malaysia by the Wall Street
Journal Asia (DiGi.Com Berhad, 2008;
2009c).
By the end of 2008, the subscriber
market share, with a total of 27.8 million
subscriptions, showed a slight change in
ownership compared to the previous year,
with Maxis at 40% (11.1 million), Celcom
at 31.7% (8.8 million) and DiGi at 25.5%
(7.1 million), while U Mobile had a 2.9%
market share (0.8 million). The ARPU
for the three major mobile phone service
companies figure increased to 188 in 2007,
but decreased to 172 in 2008. From 2005
to 2008, they also had an almost similar
number of combined ARPU for both prepaid
and postpaid services (Khairul Akmaliah &
Mohd Fuaad, 2011).
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
Entry of MVNOs and Subscription
Maturation
In the first quarter of 2009, Maxis partnered
with Malaysia Airlines and AeroMobile to
enable its postpaid customers to use their
mobile phones on certain flights. At that
time, the company also became the first
telco to offer iPhone 3G 8GB and 16GB
services to the Malaysian market, and this
was followed by its introduction of iPhone
3GS in the third quarter of the same year
(Maxis Berhad, 2009). By late March
2009, Celcom’s and Maxis’ market shares
of mobile phone services were fairly stable
at 32.5% and 42.1%, respectively, while
DiGi recorded a small decline to 25.4%,
compared to its percentage of the market
share at the end of 2008 (Business Monitor,
2009b, p. 24). As of the same period, the
three major mobile telcos offered similar
pricing and number of prepaid and postpaid
service packages.
In March 2009, U Mobile launched
its first International Direct Dialing (IDD)
service for its prepaid subscribers, which
offered low call rates to fixed and mobile
line users in selected foreign countries
(U Mobile, 2010a; 2010b). Later in May
2009, U Mobile introduced two postpaid
services, one of which offered up to four
supplementary lines, while the other allowed
free calls within its network, at a low fee
(U Mobile, 2009) and by October 2009, it
launched its new 3G broadband service (U
Mobile, 2010a).
In March 2009, DiGi launched its
7.2Mbps 3G broadband service, which,
at that time, was the highest access speed
for a 3G mobile broadband available to
subscribers in Malaysia. DiGi also offered a
10GB monthly bandwidth to its customers at
a lower service fee compared to other mobile
service operators (Yeap, 2009a). In July
2009, DiGi started offering its Blackberry
packages to corporate and retail customers
(DiGi.Com Berhad, 2009a). Over the years,
DiGi continuously upgraded its prepaid
and postpaid services, and progressively
developed its data services, including
its mobile-TV, -podcasts, -remittance,
-chatting, -online music tools, and -music
exchange amongst its customers (DiGi.Com
Berhad, 2009b).
In April 2009, Maxis launched its
Hotlink Youth Club plan, which targeted
prepaid service users among college
students. During the second quarter of
2009, through partnerships with Nokia,
Visa, Maybank and Touch ‘n Go, Maxis
introduced its integrated mobile payment
services, which enabled customers to
purchase and make transactions using mobile
phone devices. In the same quarter, Maxis
offered BlackBerry Storm smartphone to its
customers, which enabled them to efficiently
navigate and conveniently access Internet
social networking sites (Maxis Berhad,
2009).
In May 2009, DiGi.com launched its
3G service in Sabah and Penang as a part of
its substantial expansion plan to enable its
broadband service to reach a greater number
of Malaysian customers (“Broadband
competition intensifying”, 2010). By the
end of June 2009, Celcom had 420,000 3G
broadband users; Maxis 171,200, and DiGi
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
27
Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
11,000 (“Cover Story..”, 2009). By the
end of 2009, Maxis intended to double the
number of its broadband subscribers, while
Celcom planned to have a 120% broadband
market growth in the same year (“Celcom
targets 120% growth”, 2009; Song, 2009b).
As Maxis and Celcom had launched their
3G broadband services in 2006, they were
able to build a substantial size of customer
base before DiGi and U Mobile were able
to do so. Moreover, there were also wireless
Wi-Fi and WiMAX service providers, and
wired operators in the broadband market,
which also competed against the three
mobile telcos.
Moreover, at that time, many existing
broadband customers were hand-cuffed
by a 12-month contract when subscribing
to a particular service. This made the
potential subscriber switching costs steep,
thus making it difficult for new broadband
providers to penetrate the market. In the
case of DiGi, however, with Telenor as its
parent company, it could take advantage
on the latter’s know-how in running 3G
networks in other countries (“DiGi CEO
Johan Dennelind”, 2009; “DiGi: Mobile
communication”, 2008). U Mobile, the other
3G latecomer, also had a strong backer, as it
was a part of a resource-rich conglomerate.
The two WiMAX broadband players, P1 and
REDtone, were also belonged to resourcerich holding companies, respectively.
In October 2009, Maxis launched its
‘mobile money transfer service’, which
was jointly operated with Western Union,
to allow its 11 million subscribers to send
money directly to accounts in foreign
28
countries using their mobile phone. In
November 2009, DiGi introduced Turbo 3G
services, which improved the quality of voice
and SMS transmissions and Internet access
for its subscribers. By then, its 3G Internet
PC broadband service had attracted nearly
30,000 customers, but it was still hampered
by transmission coverage problems. The
company’s coverage was limited to about
59% of the Klang valley area, and less
than 50% of the country geographical area
(Leong, 2009; Siti Sakinah, 2009).
In mid 2009, several new Mobile Virtual
Network Operators (MVNOs) began offering
their mobile phone services. These services
were provided via telecommunications
networks supported by the established
telcos, and each of these MVNOs aimed
to be a niche player within its own market
segment. For examples, XOX Com, which
began operation in May 2009, planned to
turn one million Malaysian ethnic Chinese
youth into its customers, while TuneTalk,
another MVNO had a goal of attracting
400,000 users, specifically migrant workers
and International Direct Dialing customers
(“New mobile operator”, 2009; Sidhu,
2009; 2010; “Tune Talk eyeing”, 2009;
Zam, 2009). The other two MVNOs were
REDtone and Merchantrade, with the former
offering its postpaid plan to enterprise
(SMEs) and corporate customers, while
the latter providing prepaid international
direct dialling (IDD) call services. These
four MVNOs were dependent on Celcom
to provide them with network infrastructure.
In this regard, being the service wholesaler,
Celcom received a certain percentage of fees
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
from the MVNOs’ businesses. At this point
of time, Maxis’ MVNOs had yet to launch
their services. Therefore, unlike Celcom
and Maxis, DiGi did not gain any advantage
from the entry of MVNOs. Instead, these
new players posed a certain level of threat to
its business, especially in the prepaid market
(Axiata Group Berhad, 2010).
All mobile phone companies, however,
faced increasing infrastructure and
operations costs, which involve maintaining
and upgrading telecommunications
infrastructure, such as telecommunications
towers, switching units and other required
hardware and software. These costs
require mobile phone companies to have
a solid financial standing to support their
future growth. Moreover, the increasing
convergence of mobile and Internet
technologies and fierce competition with
competing broadband technologies might
also pose operational difficulties to these
companies in the future. On the other hand,
this technology convergent may also open
new opportunities for them to expand their
operations.
An important instance is the integrated
3G service market, which has a high
growth potential mainly due to the reduced
price of 3G-enabled mobile phone
devices and smartphones. This in turn
allows more mobile phone subscribers to
purchase them and utilize the 3G and other
advanced services provided by mobile
phone companies. This, combined with the
industry players’ continuous upgrading of
their 3G infrastructures, enables a faster
and more reliable mobile transmission
and higher value-added services, to their
customers. The reduction of phone price and
the upgrading of 3G services significantly
improve customers’ service experiences and
emotional attachments.
This is already evident in the increase
in the number of 3G subscriptions in the
past several years. While only 1.56 million
(6.7%) users of the total 23.3 million
mobile phone users subscribed to the 3G
services by the end of 2007, this number
had increased to 4.4 million users (15.9%) of
the overall 27.713 million users by the end
of 2008 (Goh, 2008e; MCMC, 2008a). Of
these 4.4 million 3G users, 46% (2 million)
were postpaid users, while the remaining
54% or 2.4 million users were prepaid
subscribers (MCMC, 2008a). As the number
of customers who were able to access more
advanced services increased, the overall
data services usage also grew, which could
translate into the increase in the mobile
phone companies’ revenues.
In November 2009, Maxis offered
its shares again on Bursa Malaysia (after
its withdrawal in July 2007), and listed
itself as Maxis Bhd. In March 2010, TM
launched its UniFi High Speed Broadband
Service; therefore, by March 2010, within
the consumer/retail market, there were
many broadband service providers, which
comprised both the wired and wireless
providers. Their broadband services
however, were very closed substitutes.
Besides, there were broadband players
which focused exclusively on corporate
customers. By the end of 2008, the demand
for fixed (wired) broadband was the highest
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
29
Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
among broadband service subscribers,
with about 76% (1.3016 million users) of
them (1.7181 million users) using it, while
the rest, or about 24% (0.4165 million),
favoured the wireless service. By the end of
2009, however, wired broadband users had
decreased to 59%, while wireless broadband
subscribers jumped to 41% from a total of
2.6203 million users (MCMC, 2009a). As
mobile phone companies only had licenses
to run 3G broadband services and not other
types of broadband technologies, they
as a group do not have the upper hand in
controlling the broadband service industry.
By the end of 2009, the total number
of mobile phone subscribers reached 30.4
million. At that time, Maxis’ subscription
was 12 million customers at 39.6% market
share, which increased from 11.1 million
(40%) in 2008. In the same period, U
Mobile’s recorded 300,000 customers or
1% market share, in comparison to 800,000
(2.9%) in 2008 (MCMC, 2009b). DiGi
subscribers were 7.7 million or 25.4%,
in comparison to 7.1 million (25.5%) in
2008, while Celcom’s number was at 10.4
million (34.2%), which increased from 8.8
million (31.7%) in 2008 (MCMC, 2009a;
2009b). By the end of 2009, mobile phone
subscriptions surpassed the 100% mark, at
106% (MCMC, 2010).
Late 2010 and Beyond
At the end of 2010, Celcom, with about
120,000 subscribers, was the leader in
the BlackBerry smartphone market in
Malaysia. In that same year, Celcom had
already launched three (out of four) new
30
BlackBerry devices and introduced its new
prepaid plan, Xpax BlackBerry Messenger.
It also became the first to introduce other
smartphone packages, including Nokia
C3, LG Optimus 7, and the latest Windows
Phone 7. Moreover, the company had also
offered a new incentive scheme that focused
on building depth of customer usage and
increasing the duration of their subscription,
aimed at increasing subscriptions of its
postpaid and prepaid customers. By the
end of 2010, Celcom had achieved a 40%
increment in its gross prepaid subscription,
mainly through the increase in its foreign
workers segment. By then, Celcom’s four
MVNOs business revenue contribution
had almost double their contribution in the
previous year, along with the number of
their subscriptions, ending the year with
about 600,000 customers (Axiata Group
Berhad, 2010).
Celcom’s revenue increased from
RM6.3 billion in 2009 to RM6.9 billion
by the end of 2010, which it associated to
its mobile broadband business. By then,
its mobile phone subscription increased
by 10% to 11.2 million subscribers, which
the company attributed to its focus on
continuous improvements of its networks
infrastructure, execution of the segmented
marketing strategy (including youth and
foreign workers), as well as improvements
in its sales and distribution channel and
its customer service quality. At the end of
2010, Celcom announced its transformation
plan that aimed toward supporting its goal
to become the number one provider of
mobile voice and broadband services in
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
Malaysia. This plan was expected to involve
strengthening its networks collaborations,
extending its intelligence and branch
networks with the target of improving
customer experience, as well as expanding
its enterprise (SMEs) and corporate
businesses (Axiata Group Berhad, 2010).
Meanwhile, by the end of 2010, Maxis
reported that its strategic plan for 2011 was a
three-pronged approach, which involved (a)
maximizing its voice business; (b) securing
data access leadership and penetration;
and (c) delivering products and services
beyond telecommunications. In view of
the stagnating voice revenues and the highgrowth of Internet content and services,
starting in 2009, Maxis planned to transform
itself from a “mobile service company”
into an “integrated communications service
provider”. In executing this plan, among
others, Maxis pledged to improve its
performance, make investments to sustain
its revenue streams, including investing in
areas of networks and operations; form and
strengthen collaborations with key entities
within the ‘integrated communications
ecosystems’; and implement prudent
financial management (Maxis Berhad,
2010).
In December 2010, Maxis entered into
a collaborative deal with TM to provide
High Speed Broadband Service. At that
time, Maxis recorded a mobile phone
subscriptions of 14 million, reported to be
the largest subscription base in the industry;
of this number, 40.1% subscriptions were
prepaid, while 47.5% were postpaid (Maxis
Berhad, 2010). Maxis’ mobile phone
services achieved a 42% revenue market
share (in comparison to 42% in 2009,
and 43% in 2008). Utilizing its 3G/HSPA
network services, which had covered 76% of
Malaysia, and its 2G networks, accessible by
95% of the population, it had able to gather
600,000 broadband subscriptions (Maxis
Berhad, 2010).
Meanwhile in 2010, DiGi was voted
by Asian Sustainability Rating as the best
company in Malaysia, the number one
telco in Asia, and the 11th best company in
Asia. DiGi was also ranked among the top
ten companies of the year by a Malaysian
business magazine. By the end of 2010,
DiGi captured a market share of 25.6% in the
mobile phone market. In its Annual Report
2010, DiGi described its growth was driven
mostly by the increase in its, a) customer
acquisition; b) data (Internet and broadband
services) and smartphone offerings; and c)
prudent cost saving measures. Through its
continuous investment, DiGi achieved a
50% mobile Internet and broadband network
coverage of populated areas by the end of
that year. It aimed to increase its coverage
to 60% by the end of 2011.
By the end of 2010, DiGi had 211,000
broadband subscribers and 8.8 million
mobile phone customers, with 4.2 million
of them were 3G mobile Internet users. By
then DiGi’s ARPU for postpaid was RM83,
prepaid was RM46, and their combined
figure was RM52. It had also achieved
50% population coverage for its 3G/HSPA
and had begun collaboration with Celcom
to increase and upgrade its transmission
networks. DiGi’s Group revenue for 2010
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
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Mohd Fuaad Said, Khairul Akmaliah Adham and Farzana Quoquab
was RM5.4 billion, an increase of 10.1%
compared to the previous year (DiGi.Com
Berhad, 2010; 2011).
In 2010, DiGi also conducted a number
of innovative marketing campaigns in its
prepaid and postpaid mobile phone services,
which enabled it to boost its customer
base. DiGi had also entered into several
collaborative partnerships to boost its
growth, and, according to the company, this
could lead to the overall growth of Internet
and broadband industry in the country. In
going forward, DiGi considered mobile
Internet as the driving factor of its growth,
and to exploit this opportunity, it planned
to focus on improving the quality of its
mobile Internet and broadband services,
strengthening its sales and distribution
channels, introducing new products and
services, and implementing a differentiation
strategy to enable provision of good
experience to its customers (DiGi.Com
Berhad, 2010).
Meanwhile, by the end of 2010,
U-Mobile, which remained a private
operation, had revamped its prepaid
service packages, charging a flat rate for all
domestic calls, and lowering its SMS rates
(U Mobile, 2010a; “U Mobile’s new prepaid
rates”, 2010). By then, the company had also
upgraded its broadband offering to DualCarrier High-Speed Packet Access (HSPA)
(U Mobile, 2010a; 2010c; 2010d; 2010e).
These actions indicated the company’s
stronger move into the industry.
By the end of 2010, the competition in
the Malaysian telecommunications market
was getting ever more intense, with the
32
mobile phone service providers offering
similar products and comparable pricing.
The market was getting crowded with the
entry of U Mobile and the MVNOs, as well
as other new broadband players. Moreover,
mobile phone subscriptions had increased
further to 117% compared to late 2009,
which was at 106%, while the number of
broadband subscription was at 55.6%, which
was also an increase from 38% at the end of
second quarter 2010 (MCMC, 2010).
As consumer subscription reached
maturation, it can be expected that the
enterprise (SMEs) and corporate market
in both mobile voice and Internet services
will play a greater role in contributing
toward the companies and industry growth
(“Cover Story..”, 2009). Over the years,
all three mobile phone companies had
employed various strategies and had heavily
marketed their mobile solutions, including
their smartphone offerings, to enterprise
(SMEs) and corporate customers, with each
expecting high growth sales in this market
segment (“AmAssurance, DiGi bantu ejen
insurans”, 2008; “Cover Story..”, 2009;
DiGi.Com Berhad, 2009b; Goh, 2007a;
Koh, 2010; Loke, 2010; Tan, 2009).
While the broadband service market
was a challenging one for mobile phone
companies due to the large number of
competitors, including Wi-Fi, WiMAX, or
fixed providers like TM, as a group, these
mobile phone companies still had the upper
hand against other groups of broadband
service provider. Most importantly, their
monopoly on the mobile service through
which they offered their smartphones
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
Strategic Posturing of Malaysian Mobile Phone Service Providers
packages (which had Internet services
embedded into the customers’ mobile
phone services), enabled them to conquer
the Internet market as well. These were
more ubiquitous technologies compared to
the cumbersome PC-based Internet access
technologies, which were the most common
media utilized by Malaysian customers
to access Internet broadband services
(Yeap, 2009b). In any case, all broadband
service providers were under pressure to
improve their services, as the government
was planning to have a 100% broadband
coverage for the entire country by the
year 2015. Among others, the Malaysian
government had offered many inducements
and tax-relief plans to both broadband
service operators and their customers (Kong,
2009). These actions were expected to
rapidly increase broadband service usage
in the near future, but the main question
remains if mobile phone providers would
emerge as the big winner.
By the end of 2010, the
telecommunications war appeared to have
moved into customers’ home (after years of
intense rivalry in mobile services) with the
availability of the High Speed Fixed Line
Broadband technologies. This started with
UniFi, which was offered by the incumbent
Telekom Malaysia Berhad in March 2010,
and was quickly followed by Maxis at the
end of 2010. On the whole, the mobile phone
companies’ growth during 2010 was mainly
centered on data and Internet services, with
their voice businesses maturing. Thus, the
industry’s future growth is likely to be
largely driven by customers’ increasing
demand for Internet and broadband services
and for ubiquitous Internet access. The
industry’s hyper competition however, has
resulted in operators beginning to seek
collaborative partnerships with each other in
order to reduce costs, particularly in relation
to their technology infrastructures.
Pertanika J. Soc. Sci. & Hum. 21 (S): 1 - 34 (2013)
33